MERRILL LYNCH ASSESSES RESERVE ADDITION COSTS

July 18, 1994
A group of 15 major companies chalked up increased costs per equivalent barrel to find, develop, and buy U.S. oil and gas reserves last year. But those costs showed a moderate decline worldwide, says a review by Merrill Lynch, Pierce, Fenner & Smith Inc. The New York investment firm's review of the group's unweighted finding, development, and acquisition costs shows an average $5.71/barrel of oil equivalent (BOE) in the U.S. during 1993. The figure was $4.69/BOE in 1992.

A group of 15 major companies chalked up increased costs per equivalent barrel to find, develop, and buy U.S. oil and gas reserves last year.

But those costs showed a moderate decline worldwide, says a review by Merrill Lynch, Pierce, Fenner & Smith Inc.

The New York investment firm's review of the group's unweighted finding, development, and acquisition costs shows an average $5.71/barrel of oil equivalent (BOE) in the U.S. during 1993. The figure was $4.69/BOE in 1992.

"Undoubtedly, there are a number of factors in this change, but it is noteworthy that 1993 witnessed a number of U.S. exploration disappointments, particularly in Alaska," said a report authored by George D. Baker, first vice-president, and Sophie A. Mitchell, industry analyst. However, they added: "We would caution against placing too much significance on the I year increase in the U.S. because since 1989 the average has alternately risen and fallen between $5.85 and $4.69/BOE."

Worldwide, costs fell to $5.04/BOE from $5.19 in 1992.

The authors said, "This confirms the view common to a sizable majority of major oil companies that exploration and production operations outside the U.S. are more attractive economically."

Regions that helped trim the worldwide figure included Nigeria, Indonesia, U.K. North Sea, Kazakhstan, Russia, Congo, and Yemen.

Placing the world figures in perspective, the authors said, "It is worth noting that reliability of concession agreements in the former Soviet Union has become less than average given recent announcements of export controls, export tariffs, and disputes as to pipeline rights-of-way and financing.

"Therefore, consideration of the political stability of concession agreements should be considered at the same time a company is noted for a low finding, development, and acquisition cost."

COST LEADERS

British Petroleum chalked up the lowest U.S. cost in 1993 at $2.21/BOE.

It was followed, in order, by Phillips, Occidental, Chevron, and Royal Dutch/Shell. All were well below the $5.71 group average.

Worldwide leader for the year was Chevron at only $1.50/BOE, followed by Mobil, BP, Oxy, and Sun.

For the 5 years ending 1993, the U.S. cost leader was Phillips at $2.64/BOE, trailed by BP, Oxy, Texaco, and Mobil.

Worldwide, the 5 year pacesetter was Royal Dutch/Shell at $2.92/BOE, followed by Chevron, Phillips, Mobil, and Oxy.

WHERE THEY BENEFITTED

Merrill Lynch's review outlines these regions that helped companies cut their costs to find, develop, and buy oil and gas reserves:

  • Phillips - 1993 U.S. performance got a boost from gas reserves addition in its Sunfish prospect in Alaska's Lower Cook Inlet and in the Garden Banks area of the Gulf of Mexico. Helping the worldwide 5 year performance were gas reserve additions in Hewett and Maria fields in the U.K. North Sea and reserve additions on the flanks of Ekofisk field in the Norwegian North Sea.

    The 5 year U.S. performance was helped by those areas and new gas reserves in the San Juan basin of New Mexico and South Marsh Island area off Louisiana, both in 1992, and in prior years from enhanced recovery operations in West Texas.

    Worldwide 5 year performance also was attributable to additions in Xijang field off China, Harriet gas field in Australia, and South Umbarka field in Egypt. Also assisting in prior years were new reserves in Ekofisk and in Obama and Tebidaba fields of Nigeria.

  • BP - U.S. 5 year performance was due mainly to revisions and improved recovery on Alaska's North Slope, in particular Prudhoe Bay field, as well as development of Pompano and Mars fields in the Gulf of Mexico. BP attributes its 1993 worldwide performance to a focused exploration program in which drilling was largely restricted to areas with past success.

    Main additions, discoveries, and extensions also occurred in Harding (previously known as Forth) and Mungo fields in the U.K. North Sea.

  • Oxy - 1993 performance in the U.S. got a lift from carbon dioxide floods in West Texas, enhanced recovery in Kern County, Calif., and scattered discoveries in North Louisiana and Mississippi. Worldwide performance for the year was helped by reserve additions on the Masila block in Yemen, Block 16 in Ecuador, and Vanyogan field in western Siberia.

  • Chevron - Top reasons for strong worldwide performance include booking of 1.1 billion bbl of crude oil and liquids and 1.5 tcf of gas in Tengiz field of Kazakhstan. The company also had profitable oil reserve additions in Nigeria. Prior to 1993, a contract extension on the Rokan block in Sumatra aided 1992 comparisons.

  • Royal Dutch/Shell - Five year performance stems mainly from increased estimate of gas reserves in Groningen field, Netherlands. In the U.S. in 1993, reserve bookings in Mars field improved performance.

  • Texaco-Outside the U.S., 1993 performance was helped by gas reserves in Dolphin field off Trinidad and Orwell field in the U.K. North Sea. In the Danish North Sea, additions in Tyre and Dan fields helped 1993 results.

    Reserve additions in Duri heavy oil field of Indonesia contributed in 1993. Captain field in the U.K. North Sea also was a source of reserve additions, as was increased crude oil reserve estimates in the Neutral Zone.

    In the U.S., Texaco's performance benefitted from enhanced recovery programs in Paradis, Wasson, and Mabee fields of West Texas. New gas reserves were booked in Tiger Shoals field of Louisiana and in tight gas sands of East Texas.

  • Mobil - Five year performance in the U.S. was helped by gas reserve additions in Dauphin Island field in Mobile Bay off Alabama and in Tip Top field of Wyoming.

    Worldwide results got a lift from reserve additions in the U.K. North Sea, various Nigerian fields including Yoho and Omon, and Arun gas/condensate field in Indonesia. Worldwide, 1993 costs benefitted from reserve additions off Qatar in the Persian Gulf.

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